The Need For Speed Is Driving Life Sciences Lab Conversion Boom
Jennifer Luoni is accustomed to converting commercial properties to lab space — she is director of operations at Boston-based architecture firm Dacon, which specializes in life sciences design.
But a recent assignment for Vedanta Biosciences has her in novel territory. The level of difficulty in transforming an old wood-framed space into a proper lab has made this design assignment comparable to “a bad game of Jenga.”
“It’s almost impossible,” Luoni said of the project, which seeks to convert an undersized space in Cambridge, Massachusetts.
Typically, the amount of ductwork and HVAC gear needed for a lab means ceilings heights should be 14 feet at minimum. This building hits 11-and-a-half feet at its highest point; designers have had to carefully lay ductwork, sprinklers and lighting on top of each other in a narrow 2-foot-high space, trying to figure out the puzzle of arranging so much gear while still hitting the minimum allowable ceiling height.
“Cramming a whole bunch of stuff into a building like that is crazy,” Luoni said. “But the desire to expand into the area is so high, they’re willing to do it.”
The forthcoming Vedanta conversion underscores why this type of retrofit is so hot right now and is pushing architects and developers to attempt conversions in spaces that would have been rejected years ago. In short, there’s a lot of investment money and not a lot of new spaces to rent or lease for life sciences startups and mid-stage firms that need lab space now.
Life sciences investment jumped 36.1% nationally in 2020, hitting a record $29.9B despite the coronavirus pandemic, according to a Newmark Group report from January.
That’s creating a rush for space in appealing markets like Boston and incentivizing landlords and property owners across the region to reconsider life sciences conversions. According to Colliers Boston Director of Capital Markets Research Aaron Jodka, the conversion push is tied to tenants’ need for space now, since a conversion is usually a quicker process than ground up, taking 12 to 18 months versus 24 or more. By 2023 and 2024, the pipeline will turn back to ground-up development, he said, but in the meantime, expansion typically means conversions. There’s even a proposal to convert the first seven floors of 100 Summer St., a high-rise in Downtown Boston, into lab space, something “we’ve never seen before,” Newmark Research Director Liz Berthelette said.
“The current story is about speed to market,” Berthelette said. ”We have ground-up developments going up, but anything delivering in the next 24 months is all pre-lease at this point. If you’re a growing life sciences tenant and need to increase floor space by 20, 30 or even 50% very quickly, your options are very limited in the next 24 months.”
Landlords and investor-owners who can bring a conversion to market before that can offer something quite attractive to tenants. There doesn’t seem to be a differential between rent in ground-up and conversion projects, in terms of rent, Berthelette said.
Boston is far from the only market with pressure to quickly expand lab space. Newmark’s 2020 year-end report found that life sciences accounted for 16.4% of all office deals nationwide in 2020, and numerous markets are seeing significant conversion activity in the overall construction pipeline: 2.5M SF in San Diego, 2.3M SF In Raleigh-Durham and 1.4M SF in Philadelphia.
“We’re seeing more retrofits and more billings,” said Luoni, whose firm does conversion projects nationwide. “It’s more difficult to do a renovation, but ultimately, it’s cheaper.”
In Seattle, Oxford Properties just purchased the Boren Lofts, a 136K SF office building in the city’s hot South Lake Union neighborhood, for $119.1M, part of a nationwide spree of new life sciences investments, including the Emeryville Public Market in the Bay Area, focused on converting office space in growing life sciences markets.
“Conversions can make sense due to a combination of speed to market, cost and location,” Oxford Properties Vice President of Investments Tycho Suter said. “Life science space demand is significantly outpacing supply, and conversion projects offer a solution for tenants whose timeline is more immediate.”
Demand for such projects is being driven by funding. Suter said Oxford is seeing a direct correlation between funding and real estate demand — there is an increase in the need for lab space within 12 months of a fundraise, and tenants typically can’t hang back and wait for new construction. Conversions fill that immediate need.
Traditionally, conversions needed to meet a laundry list of requirements, most notably having the correct ceiling heights so there’s enough overhead room for HVAC and ductwork, strong floor load capacity to hold lab equipment and machines, the ability for significant mechanical/electrical systems, and suitable freight elevators. These requirements favor low and wide buildings, as opposed to the tall, skinny, multi-story structures that comprise a significant portion of urban commercial space.
But changes in demand and the type of space clients need are altering this calculus. Suter said that in most cases, existing office product doesn’t feature ideal slab-to-slab heights for life sciences uses. But creative planning and close coordination of mechanical systems can mitigate the issues.
In addition, the amount of actual lab space needed by lab clients has been shifting as computational and data analysis become more important to life sciences. Sometimes just 40% of new conversions are pure wet lab space (areas where chemicals, drugs or biological material are tested and analyzed), as opposed to 50% or more in decades past, opening up more spaces for retrofits, said Brent Ziegler, president of Dyer Brown Architects in Boston.
“It does open up the possibility for some buildings that weren’t being considered back when it was 50/50,” he said. “The lift isn’t as heavy. I’ve definitely seen more lab tenants looking at office space for conversions.”
Conversions also pencil out in an era of supply and material shortages. Luoni said the price of steel is fluctuating daily, and shortages mean some in-process, ground-up projects will have to wait until January for the steel they need to finish.
The market for companies involved in both design and development of converted lab space has been growing with the demand, Luoni said. Manufacturing and warehouse developers are looking into the space more, and many developers are expanding their geographic horizons now that there’s increased demand.
That demand doesn’t seem likely to slow any time soon. Berthelette said the ecosystem of venture capital and National Institutes of Health funding, coming off a record-breaking quarter in terms of private investment and huge funding requests from the Biden administration, seem poised to seed even more startups and fuel more growth. That may mean increasingly creative ways to create more labs.
“The more money you get, the more you can move the science forward,” she said. “And a growing company looking to move science forward has more demand for space.”